Permanent Health Insurance

When it comes to sickness cover, this is the ‘daddy’ of policies. The reason for this is that, as the name states, the cover is permanent. Think on the implications of that for a moment. It means that such a policy cannot be cancelled by the insurer if they have had enough of paying you each month.

As an example, a few years ago, I visited the underwriting unit of the life assurance company I was tied to in the UK. They had a man who had made just three premium payments to such a plan and then been in a car crash.

The poor fellow had broken his back in that crash and would probably never work again due to some paralysis. It isn’t the kind of thing you would fake, to be certain. But, the income paid by his plan to him was to be in the region of £17,000 each year, until he reaches age 65! His premiums in total were for around £150. That is what I call permanent.

This is a little extreme, but I am sure you can now see my reason for bringing it to your attention. A PHI plan will pay you a monthly income should you be unable to work in the future due to sickness or disability. That income may last for a very long time. Generally, it will run until you recover, return to work, reach normal retirement age or die. Potentially, that could be quite a long time.

As such, it would be remiss of me not to suggest that you think about this type of cover. At first, I ought to point out that the more ‘manual’ and risky your occupation is, the more such a plan will cost you. But that said cover of this nature is really vital for almost everyone in society that needs to earn a living. For those of us with dependent families and mortgages, such cover is a necessity.

As with ASU, this cover is designed to help replace your lost income, though PHI can be used to cover far more than just your mortgage costs. In fact, it can be used to replace a large portion of your income and therefore maintain a reasonable standard of living.

As a rule, such a policy cannot actually replace all of your income. As you might imagine, both the insurer and your government would rather see you back in the workforce. Therefore, normally the policy has a payout limit of somewhere between 60 and 70% of your former income.

Permanent Health Insurance policies also (like ASU) have a deferred period. This time period is far more flexible though for PHI than ASU. This is because many employees will receive some form of sick pay from their employer. A PHI plan can therefore be tailored to the client’s needs more individually as deferred periods can range between four weeks and two years. I’m sure that it goes without saying that a policy with a deferred period of four weeks will be far more expensive than a plan with the same terms but a twelve month deferral.

This also means that if you are employed and your employer provides perhaps (a maximum of) six or twelve months of sick pay, then for the cover provided, PHI can be a very cost effective form of insurance.

As I mentioned previously, without your income in place, you lose the ability to purchase most things. If you find yourself injured long term, a plan like PHI may be the difference between financial survival and collapse. I urge you to look carefully at it.

As with any policy of this nature, there will be many in the market at any one time and each will be priced according to the life office’s own claims history and experience. In other words, there will probably be vastly different prices for what is essentially the same policy. It often pays to do a little shopping around.